The Eradication of Poverty is Threatened by our Dependence on Partial Data

Written by Michael Green, Executive Director of the Social Progress Imperative.

Over the next 12 months the amount of aid for millions of the world’s poorest people is going to be slashed. Why? Because the countries they live in have crossed the threshold from low-income to middle-income status. The poor of Vietnam and India will still be poor but their poverty will stop being a major concern to the international aid community because the country they live in has crossed this arbitrary line. We need a better system for determining who deserves aid: one that captures social as well as economic data.

A full 73% of the world’s poor are now living in middle-income countries. Every year the World Bank defines income groups for all countries (low, lower middle, upper middle, and high), based on gross national income (GNI) per capita. Income group status is used by the World Bank, regional development banks, and other large development finance institutions and NGOs to determine which countries qualify for concessional lending, aid, health programs and many others. Cross the line from low income to middle income and the aid faucet starts to close, largely irrespective of whether people have stopped being poor or not

GNI per capita is the conventional short hand for a country’s progress. However, the relationship between poverty and economic development is not as consistent or straightforward as the use of this single measure implies. Indeed, the use of income group cutoffs for eligibility by multilateral and bilateral aid agencies places countries at risk of losing concessional lending and aid all at once, or in rapid succession, as they graduate from low and lower middle income groups.

A working paper by Rodrigo Cesar Salvado and Julie Walz of the Gates Foundation estimates that between 2013 and 2030 41 countries will have experienced this transition based on GNI growth projections. They estimate the effect of this in India, for example, will be the loss of a combined 40% of official development assistance in 2015 from the World Bank’s International Development Association, the GAVI alliance (whose mandate is to increase access to immunization in poor countries), and UK bilateral aid. Ghana will lose 32% of its aid next year. In 2016, Vietnam is expected to lose 34% of its aid. This creates the potential for countries to lose momentum, in both economic growth and social progress, as their budgets shrink and they are forced to reallocate funds or drop programs that were previously funded by foreign assistance.

The Social Progress Index—which draws on a wide set of non-economic data to establish the real quality of life of citizens in 132 countries—is one way of establishing the progress of a nation by looking at social outcomes rather than economic ones. Indeed, by focusing exclusively on social outcomes it’s possible to plot the relationship between economic data and social data—a relationship that is not as simple as the GNI thresholds for aid would have us believe.

The Index shows that countries which have similar economic status, and therefore similar development levels according to the World Bank, often have widely different Social Progress Index scores. For example, there are countries with income status defined as high and upper middle income which still score in the same range as low and lower middle income countries on measures of social progress. The average performance of all the countries in a single income group hides unequal provision of basic services and the ability to meet basic human needs across countries.

Take Pakistan. By 2021 it is expected to lose around a quarter of its overseas aid. Yet according to the results of the 2014 Social Progress Index it is ranked 124th out of the 132 countries measured. Indeed, according to the Index, there are a significant number of middle income countries including Angola, Cameroon, Republic of Congo, Lesotho, Nigeria, Sudan, Swaziland, and Zambia who perform below the average of low income countries. Income does not always equate to improved quality of life.

Under the current system countries can face reductions in aid because of an increased average income even if there has been little or no improvement in the social indicators that the aid targets. Adding social indicators to income group cutoffs could allow aid agencies to better assess country needs and so assess a more holistic picture of development. The next phase of development assistance should adapt to increasing evidence that economic growth is not the single measure of a country’s progress. If we continue to rely on economic data alone to allocate aid then not only do we risk wasting billions of aid dollars, but we risk keeping millions of people who need the most help trapped in poverty. The data is out there. Let’s use it.